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Church & Dwight Reports Third Quarter 2012 Results

Stocks in this article: CHD

Church & Dwight Co., Inc. (NYSE:CHD) today reported net income for the quarter ended September 30, 2012 of $93.9 million or $0.66 per share, compared to the reported net income of $79.6 million or $0.54 per share for the same period in 2011. Earnings per share increased 22.2%.

Third Quarter Review

Reported net sales for the third quarter increased 3.5% to $725.2 million. Organic sales increased 4.6%, driven by 4.5% volume growth and 0.1% favorable product mix and pricing. Organic sales excludes the impact of a 2011 brand acquisition, foreign exchange rate changes and the positive impact in 2011 of sales in anticipation of an information systems upgrade.

James R. Craigie, Chairman and Chief Executive Officer, commented, “We are very pleased with our third quarter business results in what continues to be a difficult economic environment. The organic sales increase of 4.6% reflects strong consumer demand for our products. Despite continuing weak category consumption in the U.S., we increased market share on our four largest brands in the quarter, representing over 70% of our volume. In fact we achieved all-time high quarterly market shares on ARM & HAMMER liquid laundry detergent, XTRA liquid laundry detergent and TROJAN condoms.”

Consumer Domestic net sales were $530.4 million, a $24.3 million or 4.8% increase over the prior year third quarter sales. Third quarter organic sales increased by 4.8%, primarily due to higher sales of ARM & HAMMER liquid laundry detergent, ARM & HAMMER cat litter, OXICLEAN Laundry Additives, TROJAN products, NAIR depilatories and the recently introduced ARM & HAMMER CRYSTAL BURST unit dose laundry detergent. These increases were partially offset by lower sales of ARM & HAMMER powdered laundry detergent, ARM & HAMMER SPINBRUSH battery-operated toothbrushes, ANSWER diagnostic kits and ARRID deodorant. Volume growth contributed 5.2% to sales, partially offset by 0.4% unfavorable product mix and pricing.

Consumer International net sales were $131.1 million, a $2.6 million or 2.0% increase from the prior year third quarter sales. Third quarter organic sales increased by 6.7%, primarily due to stronger sales in Europe and Australia. Volume accounted for 6.6% of the increase, with 0.1% of the increase resulting from favorable product mix and pricing. Organic sales excludes a 1.9% benefit from an acquisition, a 5.3% negative impact from foreign exchange rate changes, and a 1.3% benefit associated with sales in anticipation of the information systems upgrade which occurred in Canada during October 2011.

Specialty Products net sales were $63.7 million, a $2.7 million or 4.0% decrease over the prior year third quarter sales. Third quarter organic sales decreased by 0.9%. Lower volumes accounted for 4.7% of the decrease, partially offset by favorable pricing which contributed 3.8% and were primarily due to a pass-through of raw material increases to customers. Organic sales excludes a negative impact of 3.1% from foreign exchange rate changes.

Gross margin expanded 100 basis points to 45.2% in the third quarter compared to 44.2% in the prior year third quarter. The improvement is due primarily to a cat litter price increase, new product launches in the personal care business, in-house production of unit dose detergent, ramp-up of the new Victorville, California facility and the reduction in retailer slotting costs. Although commodity costs were higher in the quarter, the increases were largely offset by the effect of productivity programs. As a result, the Company continues to expect full year gross margin to increase by an amount at the lower end of its 25-50 basis point annual target, excluding the impact of the Company’s recent acquisition of Avid Health, Inc.

Marketing expense was $92.2 million in the third quarter, the highest quarterly level of 2012. The spending represented a slight increase of $0.4 million, or 0.4% over the prior year third quarter. Marketing expense as a percentage of net sales was 12.7%, a decrease of 40 basis points compared to the prior year third quarter and reflects a shift in spending from the third quarter to the fourth quarter of 2012. Marketing expense is expected to increase sequentially in the fourth quarter of 2012 to support new product launches.

Selling, general, and administrative expense (SG&A) was $89.9 million in the second quarter, a $1.9 million decrease from the prior year third quarter. SG&A as a percentage of net sales was 12.4%, a 70 basis point decrease from the prior year third quarter, primarily due to lower legal costs and the timing of research and development expenses.

Income from Operations was $145.4 million in the third quarter, an increase of $19.1 million or 15.1% over the prior year third quarter. Operating income as a percentage of net sales was 20.0%, a 200 basis point increase over the prior year third quarter.

The effective tax rate in the third quarter was 35.7%, compared to 36.8% in the prior year third quarter. The Company continues to expect the full year effective tax rate to be approximately 35%.

Operating Cash Flow

For the first nine months of 2012, net cash from operating activities was $315.9 million, a decrease of $3.3 million or 1.0% over the same period in the prior year. The decrease in net cash from operating activities is a result of lower deferred tax benefits partially offset by higher net income. Capital expenditures for the first nine months of 2012 were $49.7 million, an $8.9 million increase over the same period in the prior year. The increase in capital expenditures is primarily related to the Company’s construction of its new Victorville, California manufacturing and distribution facility.

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